Robo-advisors target the mass affluent
since robo-advisors entered the wealth-management business a few years ago, they have been associated with catering to and serving clients with smaller accounts. But that appears to be changing with the emergence of higher-level services targeting the mass-affluent market.
In the U.S., where robo-advisor firms first appeared, these digital asset-allocation services are gaining popularity among U.S. mass-affluent clients - sometimes at the expense of traditional advice channels, according to a report from Chicago-based Spectrem Group published in January.
For example, the report, Wealthy Investors and their Perceptions of Robo-Advisors, found that 56% of clients in the U.S. with US$100,000 or more in assets who used a robo-advisor had never worked with a financial advisor.
Canadian robo-advisors also have noted a growing need for their services among the mass affluent. Toronto-based Wealthsimple Financial Inc. launched its "Wealthsimple Black" platform in January. It offers a higher level of service and benefits to clients with $100,000 or more invested with the robo-advisor.
The service was a natural evolution for the financial technology startup, says Michael Katchen, Wealthsimple's founder and CEO. As Wealthsimple's clients' assets began to grow, so did their financial needs.
"We want to evolve our services to meet [clients'] needs as their assets grow [in order for clients] to take advantage of things beyond the RRSP, beyond the TFSA," Katchen says. "They need more sophisticated tax strategies, more sophisticated financial planning."
As part of the Wealthsimple Black service, clients pay a reduced management fee of 0.4%, down from 0.5% for the regular service, along with access to tax-efficient funds and tax-loss harvesting.
As well, clients can speak with a portfolio manager online to craft a basic financial plan. Says Katchen: "The idea of it is sort of more traditional financial advice."
In time, Wealthsimple plans to add tools to its website that will allow clients to better monitor the goals set out in their financial plans.
An additional benefit of Wealthsimple Black is that it recognizes the importance of one of the most common goals of the robo-advisor's clients: travel. Clients will be given a priority pass granting them and a guest access to more than 1,000 airport lounges.
"[The priority pass is] a little bit of a hat tip or a nod to the fact that we view being a Wealthsimple client really as more than simply the asset selection," Katchen says.
This service is in keeping with the benefits typically reserved for high net-worth (HNW) clients.
That a robo-advisor is offering such a bonus is a sign of how technology is democratizing financial advice, says Hwan Kim, a manager with NewYork-based Monitor Deloitte, in Toronto.
"There are levels of exclusivity in [the ultra-HNW market], whether it's about access to certain tickets, having premium services or being available 24/7," says Kim, "[which] I think can and will be replicated through the digital channels."
Wealthsimple isn't the only Canadian robo-advisor offering a higher-level service to clients with bigger accounts. In December 2016, Vancouver-based ModernAdvisor launched its custom portfolio service.
Clients who invest $150,000 or more with the robo-advisor will have a customized portfolio crafted for them that takes into account assets held outside of ModernAdvisor.
"We actually have a conversation with these clients to get a much better holistic view of their financial situations," says Navid Boostani, ModernAdvisor's CEO, "and at that point, one of the advisors will come up with recommendations of how to change the existing portfolio to better suit our client's needs."
In creating those customized portfolios, clients will have access to any ETF listed on a North American exchange, tax-efficiency strategies and U.S.-dollar accounts.
The service is focused strictly on investment planning, says Boostani, and does not delve into broader financial planning. Instead, ModernAdvisor is looking to work with traditional advisors, who can provide such services to clients.
"We don't have any plans to get into the financial planning space because we want to do that through partnerships," Boostani says.
Similarly, even though Wealthsimple offers basic financial planning for its premium clients, it will refer clients requiring more specialized advice to advisors with whom it has partnered through its Wealthsimple for Advisors platform.
Individuals who are solely clients of the advisor platform, however, are not eligible for the higher level of service.
Moving into services that take a broader look at a client's overall financial picture will be crucial for robo-advisors as they evolve and try to gain a bigger share of their clients' wallets, Kim says.
To do that - particularly when working with the mass affluent market - robo-advisors will have to develop tools that can help clients rethink how they manage their cash flow instead of focusing on managing money the client has already decided to put aside.
Says Kim: "Those additional services will be critical."
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